When the financial markets didn’t behave the way he expected, President Clinton famously said “You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of xxxxing bond traders?”

He was complaining about the bond market, often considered wiser and more exacting than the stock market. Watching the bond market is very important.

That’s worrying me now, in light of the continuing European debt crisis. Sure, the EU has come to the rescue of Greece, and the bond market rallied. Yesterday, it came to the rescue of Ireland, and the bond market has not rallied. The bond market doesn’t believe this will contain the problem. One would expect the cost of insuring Irish bonds or CDS spreads would decrease as a result of yesterday’s bailout. They did but only slightly. Meanwhile, the cost for Portugal’s bonds continues to increase.

Portugal will be next. That may be the last stand. After that, Spain’s bonds will get hammered. As they are 20% of the GDP of the EU, that would probably be fatal to the Eurozone. Not even mighty Germany could bail them out.

Not surprising, the Euro has been dropping this morning. As investors sell the Euro, the dollar has been increasing, which is bad for our exports. Over the last year, a strengthing dollar has been strongly linked to a weakening stock markets.

Like cholera in Haiti, the fear of loss by bond traders spreads quickly. If the Eurozone comes apart, the bond traders will then focus on U.S. bonds . . . may God help us!